Translating Invoice Terms

Sam Permutt, Express Trade Capital

Making sense of the various terms contained in invoices can be frustrating. Plus, terms are getting trickier and more involved as big customers continue to strategically extend their payment terms and interrupt cash flows for smaller businesses (in turn creating a greater need for factoring). When negotiating a purchase order or contract, it is essential to know what payment terms are, what they mean, and what options exist.

To help make sense of the most used invoice terms, here’s a helpful cheat-sheet:

Net due upon receipt of goods (or n/ROG)

If the terms are net due upon receipt of goods (or nROG, or n/ROG — “n” standing for “net”), the invoice amount is due when the customer receives the goods. Note that the date of “receipt” is up to the customer receiving the goods; goods can remain in a shipping container, for example, before the vendor decides to “receive” the goods. However, if the terms are Net 30 ROG, that means payment is due 30 days after the receipt of goods.

Net 30 days

Payment terms that require a simple count of days after the date of the invoice (e.g. N30, N60, N90, etc.) are the most common terms used between wholesale vendors and their retail customers. Luckily, they are also straightforward and easy to understand.

When an invoice states net 30 days (typically written as “N30”) the invoice amount is due 30 days from the date of the invoice. For example, if an invoice for $1,000 is dated July 1 and the terms are net 30, you need to pay $1,000 by August 1 or else additional fees or interest may apply. If the terms are net 60, the payment is due on September 1st (i.e. 60 days after the invoice date). For net 90, payment is due on October 1st (i.e. 90 after the invoice date), and so on.

1/10 Net 30

When an invoice includes the terms 1/10, n/30, the “1” represents 1% of the amount owed, the “10” represents 10 days and the “30” represents 30 days. According to the terms 1/10, n/30, you may take an early payment discount of 1% of the amount owed if the amount owed is paid within 10 days instead of the normal 30 days. In other words, you can pay within 10 days and deduct 1% from the invoice amount or pay the full amount in 30 days.

2/10 Net 30

Just like 1/10 Net 30, with terms of 2/10, n/30, the “2” represents 2%, the “10” represents 10 days, and the “30” represents 30 days. This means that the customer can take an early payment discount of 2% of the amount owed if payment is made within 10 days. In this scenario, the customer can choose either of the following: pay within 10 days and deduct 2% from the invoice amount, or pay the full amount in 30 days with no discount.

5/10, 2/30, Net 60

Under these payment terms, the customer gets a 5% discount if they pay within 10 days or a 2% discount if they pay within 11-30 days. Otherwise, full payment is due within 60 days of the invoice date.

Net 30 EOM

“EOM” stands for End of the Month. This means that the invoice is due and payable 30 days after the end of the month in which the goods were delivered. For instance, if the goods were delivered on July 15, payment is due 30 days after the last day in July.

Some account debtors (i.e. the buyers who owe payment on a given invoice) set cutoff dates whereby they consider all goods shipped after a certain date as if those goods were shipped the following month. For example, if the cutoff date is July 20^th, and goods are shipped on July 21^st, the buyer might start counting net 30 days after the end of July.

Net 10 EOM 30

Per industry practice, when an invoice is dated after the 20th of the month, the clock begins to run on the first day of the following month rather than at the end of the month in which the goods were shipped.

Therefore, if the invoice is dated July 25, the count starts 10 days after the month ends (thus August 10th) plus another the buyer has another 30 days to pay, meaning that the full amount is due on September 10th.

By contrast, if the invoice is dated July 19 – i.e., before the 20th of the month – the count starts 10 days from the invoice date of July 19th (thus July 29th) plus 30 days, meaning the full amount is due on August 29th.

*The party who is obligated to pay the invoice is referred to interchangeably as the “customer(s)”, the “buyer(s)”, the “retailer(s)” or the “account debtor(s)”.

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